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Probably The Most Important Chart In The World | Zero Hedge

Probably The Most Important Chart In The World | Zero Hedge.

logo

Having discussed the links between economic growth and energy resource constraints, and with the current geo-political fireworks as much about energy (costs, supply, and demand) as they are human rights, it would appear the following chart may well become the most-important indicator of future tensions…

Source: Goldman Sachs

This is not the first time we have discussed “self-sufficiency” – As none other than Bridgewater’s Ray Dalio noted in a slightly different context:

self-sufficiency encourages productivity by tying the ability to spend to the need to produce,”

Societies in which individuals are more responsible for themselves grow more than those in which they are less responsible for themselves.” The nine-factor gauge of self-sufficiency provides some interesting insights into those nations most likely to experience above-average growth going-forward and those that are not; as European countries, notably Italy, France, Spain, and Belgium, all ranking at the very bottom on self-sufficiency.

And here we discussed, What If Nations Were Less Dependent On One Another?

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, ‘self-sufficiency’ in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise.

Freedom of action provided by independence/autarky also implies a pivotal reduction in vulnerability to foreign control of the cost and/or availability of essentials such as food and energy, and the resulting power of providers to blackmail or influence national priorities and policies.

Consider petroleum/fossil fuels as an example. Nations blessed with large reserves of fossil fuels are self-sufficient in terms of their own consumption, but the value of their resources on the international market generally leads to dependence on exports of oil/gas to fund the government, political elites, and general welfare. This dependence on the revenues derived from exporting oil/gas leads to what is known as the resource curse: The rest of the oil-exporting nation’s economy withers as capital and political favoritism concentrate on the revenues of exporting oil, and this distortion of the political order leads to cronyism, corruption, and misallocation of national wealth on a scale so vast that nations suffering from an abundance of marketable resources often decline into poverty and instability.

The other path to autarky is selecting and funding policies designed to directly increase self-sufficiency. One example might be Germany’s pursuit of alternative energy via state policies such as subsidies.

That policy-driven autarky requires trade-offs is apparent in Germany’s relative success in growing alternative energy production; the subsidies that have incentivized alternative energy production are now seen as costing more than the presumed gain in self-sufficiency, as fossil-fueled power generation is still needed as backup for fluctuating alt-energy production.

Though dependence on foreign energy has been lowered, Germany remains entirely dependent on its foreign energy suppliers, and as costs of that energy rise, Germany’s position as a competitive industrial powerhouse is being threatened: Industrial production is moving out of Germany to locales with lower energy costs, including the U.S.

The increase in domestic energy production was intended to reduce the vulnerability implicit in dependence on foreign energy providers, yet the increase in domestic energy production has not yet reached the critical threshold where vulnerability to price shocks has been significantly reduced.

America’s ability to project power and maintain its freedom of action both presume a network of diplomatic, military, and economic alliances and trading relationships which have (not coincidentally) fueled American corporation’s unprecedented profits.

The recent past has created an assumption that the U.S. can only prosper if it imports oil, goods, and services on a vast scale.

Probably The Most Important Chart In The World | Zero Hedge

Probably The Most Important Chart In The World | Zero Hedge.

logo

Having discussed the links between economic growth and energy resource constraints, and with the current geo-political fireworks as much about energy (costs, supply, and demand) as they are human rights, it would appear the following chart may well become the most-important indicator of future tensions…

Source: Goldman Sachs

This is not the first time we have discussed “self-sufficiency” – As none other than Bridgewater’s Ray Dalio noted in a slightly different context:

self-sufficiency encourages productivity by tying the ability to spend to the need to produce,”

Societies in which individuals are more responsible for themselves grow more than those in which they are less responsible for themselves.” The nine-factor gauge of self-sufficiency provides some interesting insights into those nations most likely to experience above-average growth going-forward and those that are not; as European countries, notably Italy, France, Spain, and Belgium, all ranking at the very bottom on self-sufficiency.

And here we discussed, What If Nations Were Less Dependent On One Another?

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, ‘self-sufficiency’ in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise.

Freedom of action provided by independence/autarky also implies a pivotal reduction in vulnerability to foreign control of the cost and/or availability of essentials such as food and energy, and the resulting power of providers to blackmail or influence national priorities and policies.

Consider petroleum/fossil fuels as an example. Nations blessed with large reserves of fossil fuels are self-sufficient in terms of their own consumption, but the value of their resources on the international market generally leads to dependence on exports of oil/gas to fund the government, political elites, and general welfare. This dependence on the revenues derived from exporting oil/gas leads to what is known as the resource curse: The rest of the oil-exporting nation’s economy withers as capital and political favoritism concentrate on the revenues of exporting oil, and this distortion of the political order leads to cronyism, corruption, and misallocation of national wealth on a scale so vast that nations suffering from an abundance of marketable resources often decline into poverty and instability.

The other path to autarky is selecting and funding policies designed to directly increase self-sufficiency. One example might be Germany’s pursuit of alternative energy via state policies such as subsidies.

That policy-driven autarky requires trade-offs is apparent in Germany’s relative success in growing alternative energy production; the subsidies that have incentivized alternative energy production are now seen as costing more than the presumed gain in self-sufficiency, as fossil-fueled power generation is still needed as backup for fluctuating alt-energy production.

Though dependence on foreign energy has been lowered, Germany remains entirely dependent on its foreign energy suppliers, and as costs of that energy rise, Germany’s position as a competitive industrial powerhouse is being threatened: Industrial production is moving out of Germany to locales with lower energy costs, including the U.S.

The increase in domestic energy production was intended to reduce the vulnerability implicit in dependence on foreign energy providers, yet the increase in domestic energy production has not yet reached the critical threshold where vulnerability to price shocks has been significantly reduced.

America’s ability to project power and maintain its freedom of action both presume a network of diplomatic, military, and economic alliances and trading relationships which have (not coincidentally) fueled American corporation’s unprecedented profits.

The recent past has created an assumption that the U.S. can only prosper if it imports oil, goods, and services on a vast scale.

Peak Oil: More On Peak Demand – Peak Oil Matters

Peak Oil: More On Peak Demand – Peak Oil Matters.

109_0904_Watermarked

An observation worth noting … and pondering, from Mark Lewis (links in original):

Oil market commentators increasingly dismiss the very idea of supply-side constraints on the oil market, pointing to the recent surge in light-tight oil production from US shale deposits and the existence of vast shale formations elsewhere in the world….
But does this peak demand theory bear scrutiny? 
[F]rom data for 2013 released by the EIA recently, it is now clear that US demand not only increased last year, but accelerated rapidly over the course of the year.
All of [the data reported by the author] implies that the reduction in US oil demand over 2008-12 was not so much structural as due mainly to the weakness of the US economy following the global financial crisis, and the tightness of the local oil market until recently. As the economy has started to recover and rising domestic supply has made local prices more affordable, US consumers – whose ranks have swollen by 14m since 2007 – have started coming back to market.
Against this backdrop, the peak-demand narrative looks deficient at best and a distraction at worst….

“Peak demand” [see my six-part October & November 2013 series on this topic beginning here] has served as a convenient argument by those who continue to profess that we have no energy supply concerns worth discussing, much less planning for. But as with too many of these convenient and dismissive arguments light on facts and context, the reality suggests otherwise.

That those who should and do know better continue to ignore the inconvenient portions of the true narrative is a concern now, and will be an even larger one in the future. As populations rise; as domestic demands by oil exporting nations likewise increase; as prices continue to remain high in order to both justify and permit exploration and production of unconventional reserves, and as production rates from both conventional crude and tight oil formations continue to decline (the latter more rapidly than the former), these additional facts suggest that a broader and more truthful perspective about future energy supplies needs to be injected into the conversations.

Consumers unaware of the realities about current and future production options must be respected enough to be told the truth and not just the carefully-massaged version which supports a limited group benefitting from the silence. So too must elected officials at all levels of government understand that same broader picture of what’s in store for all of us.

Planning for anything with the full array of facts is usually a better approach in any setting. With an issue of this magnitude, it’s actually the only option—even if that limited group now  benefitting from the silence is impacted in order to benefit everyone else.

Should that really be such a difficult choice?

~ My Photo: after the storm at Good Harbor Beach, MA – 10.25.05

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